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Viewpoints from California Investment Conference – Feb. 11-12, 2012

February 13, 2012

Experts expound on Money, Debt, Reflation, Europe, Politics, and emerging Trends

After attending a great conference at the Hyatt Resort in Indian Wells, Ca., I will provide you a report on what I learned from the experts at this conference. The following viewpoints give an overview of the thinking presented:

Roger Wiegand,  Our political and monetary leaders are mostly psychopaths. These leaders could care less about who gets killed or hurt. They all seek power and control. Personally, I have given up on ‘saving the world’. Gold is likely to reach $2050/ounce in May, 2012. Oil should be at $120/barrel by June, 2012. Check out my newsletter for tips and investment advice.

Jeff Berwick,  The End of the World as we know it is here. The transition to a new system will be difficult but this transition period is necessary and positive for the longer run. Now is the time to prepare for the crash (financial collapse) of a lifetime. Those who want to protect their assets should diversify globally. Get a passport from more than just your home country. Invest in gold and gold stocks…also store up a supply of food items and plant a garden if you can. Have homes or places to travel to in many countries…if possible. Stay away from highly urban locations (say Los Angeles or similar). The State is corrupt and also all the Central Banks. Think for yourself and do not trust those in power. The collapse will happen within the next 5 years or less. See my website for my newsletter and other information. Comment:  the above is my paraphrase from my notes.

John Embry,  Debt has now reached levels which prevent any repayment options. The debt can not be repaid and our politicians and Central Banks will likely create a monetization of all future debt…this will lead to hyper-inflation down the road. The no-pain process (meaning an avoidance of the deflation scenario) will be chosen by the authorities. Kicking the can down the road will continue as there are no solutions to our debt problems. Eventually, a collapse is certain. Gold and silver investments will benefit from this process. Comment: my paraphrase from my notes.

Andrew Schiff, The history of money shows that many items have been used as money…including wampum, shells, beads, and other items. Gold and silver emerged as the best items for money. Eventually, we will return to some type of gold standard. Today, the problem is debt and the monetization of new debt. All this will likely get resolved via hyperinflation down the road. The best store of value will be gold as fiat currencies get devalued. Comment:  my paraphrase from my notes.

Greg Weldon, The big issue is ‘who will buy all our debt’ going forward? Some 2.7 trillion of USA debt will mature in 2012…and in addition to this we will run another 1 trillion of deficit. China and Japan are now liquidating debt by selling Treasuries. Are trends portending another recession? We now have deflation in real incomes, deflation in new home prices, demand for new homes are lowest ever, commercial real estate is declining, and the Greek situation is coming to a head soon. Central Banks will attempt to avoid deflation at all cost. This means that they will reflate. Gold will benefit in 2012 and beyond in this environment. Comment:  my paraphrase from my notes.

The above provides you with an overview of the thinking from this conference in Indian Wells, Ca. The weather has been beautiful and ‘on the surface’ it looks like we have NO PROBLEMS. I have noticed that a lot of Canadians are visiting this area now. It might be the weather? After listening to the above presenters and many others, I would conclude with the following comments:

Don Swenson, Every speaker (some 20 or more) seemed to think that our debt situation will lead to a reflation and then hyper-inflation down the road. The logic for this conclusion seems to be the unlimited ability of our Central Banks to create (every speaker used the word ‘print’) money to monetize future debt. I am still surprised that none of the speakers or presenters understand the operational procedures of our Central Banks today. Every speaker is thinking (in their mind) that Central Banks are ‘printing’ units of money. This mindset creates the idea that all these paper units will enter the marketplace and bid for goods and services. Is this the reality today?

In reality, all the major Central Banks today actually do not ‘print’ money. What they do operationally is create new units of money ‘out of nothing’ (via their thinking). We call this creating money ex nihilo or creating money ‘out of thin air’. There is no paper being ‘printed’ by the major Central Banks today. What actually happens is that Ben Bernanke and other Central Bankers just ‘punch’ in numbers in their Desk Computer (all Central Banks now use HFT computers) to create new money units (really digits). These new digits are called by their currency names (dollars in the USA, euros in Europe, yen in Japan, etc.).

For example: assume that I am Ben Bernanke…what would I do to create new money today? If a commercial bank (say JP Morgan Chase or Goldman Sachs) needs emergency cash for some asset in their portfolio (say, to avoid insolvency)…I just create new units for my System Open Market Account (say, the SOMA account) and then I use these new units to purchase new assets (let’s say Treasury bonds) from JP Morgan Chase or Goldman Sachs. In other words, I just create money units ex nihilo…out of nothing. New digits (now called dollars) appear in my computer screen within my SOMA (system open market account). I can use these digits (dollars) to purchase any asset I desire.

The ECB (European Central Bank or Mario Draghi) also does this same procedure…as does Mervyn King at the Bank of England (he just created another 50 billion pounds for his clients). Computers have replaced the ‘printing’ of money units and a decision from key authorities for the Central Banks initiates the process of money creation…ex nihilo.

You can verify United States money ‘printing’ by going to this website:  The B.E.P. (Bureau of Engraving and Printing) actually ‘prints’ all our paper notes which now requires less paper each year. The average face value of currency notes (produced) per day in 2011 was $453 million (this is down some $175 million from 2008). This means that approximately $117 billion of face value is produced per year (currently decreasing every year). Furthermore, some 2/3 of all new notes end up outside the boundaries of the United States. This means that only about $39 billion of face value paper notes circulate in the United States as new units in 2011. Paper notes and coins are vanishing from circulation as more people use their computers (virtual reality) for accounting and banking purposes. The cashless society has arrived in most of the Western World.

The total dollar amount of paper notes and coins that circulated in 2011 was about $829 billion (a decline from about $853 billion in 2008). Furthermore, only about 1/3 of this amount circulates in the boundaries of the United States…the remainder circulates outside the United States. So what is now happening is that ‘paper’ money and the ‘printing’ of notes is declining. The new digital units (credit cards and direct electronic units) which we call ‘virtual reality units’ have emerged as our money units today. Even the 46 million Americans now on Food Stamps receive a debit card loaded with digital money for their purchases. And most Social Security recipients now receive their monthly payment via a direct digital deposit to their banking account. What does all this mean for our future?

Ben Bernanke, our Fed Chairman, has created some 1.25 trillion of ‘face value’ equivalent units via QE1 and then some 600 billion via QE2. This suggests that most money today are digits within the computer screen and not ‘paper’ notes as implied by all the speakers at the California Investment Conference. Basically, our Fed is no longer ‘printing’ money and this has major implications for what is likely to happen in the future! Hyper-inflations (in the past) have all happened with the excess circulation of ‘printed’ notes. This was the situation in Zimbabwe in 2009-10 and Germany in 1921-24. Countries which ‘print’ all their money today could experience hyper-inflation. The United States and most Western countries, however, have now converted to mostly digital money units…and high speed computers for the distribution and accounting of these units.

Since our digital money units can be created in unlimited amounts this suggests to many that these units will enter into circulation and chase existing goods and services (eventually causing hyper-inflation). In reality, however, this is not happening. Most of the new units created are sitting in accounts and not being used to chase existing goods and services excessively. If this trend continues (as I think it will) there will be no hyper-inflation as the speakers above implied. What we now witness in the real estate sector is emerging deflation. All the excess liquidity (some say 2 trillion sitting in the major bank’s accounts) is not chasing home values or most consumer goods. In fact, both residential and commercial real estate values are now declining (suggesting a lack of bidding from the public). This trend is likely to continue going forward. What does this mean for our economy?

A more realistic scenario for our future is a DEFLATIONARY depression. We see all the symptoms now in the real estate sector and the consumer sector. Wages are not increasing and affordability for new stuff (homes, cars, and durable goods) is not improving. This suggests that deflation is much more likely than hyper-inflation. The deception that causes this change in perception centers on the word ‘printing’. Printing of new notes is not happening at a rate that would cause consumers to bid up values. Some prices are increasing (say oil and other inelastic commodities) but the overall CPI demonstrates that there is no real reflation of our economy. Prepare for DEFLATION down the road…not hyper-inflation as implied by the above experts!

The lesson in this missive is that we need to understand the ‘words’ spoken by experts. The simple word ‘printing’ has deceived many experts. Those who have not fallen for this deception will likely view hyper-inflation as a false doctrine going forward. The Devil is always in the ‘details’. Words make a difference in one’s interpretation of events. Watch the use of ‘words’ as you listen to all experts. When you hear the word ‘printing’ by an expert presenter…ask yourself WHO is ‘printing’ paper units today? Are new paper units entering the market? Where are they? Enjoy this missive and take the time to derive your own conclusions on these issues!

2 Comments leave one →
  1. ephemeral_reality permalink
    February 13, 2012 10:21 am


    Good thoughts.

    I am frankly tired of all the analysts that you have quoted. I have met some or most of them personally at a local conference and they all predict hyperinflation, without understanding basic monetary science.

    I completely agree that deflation is the more realistic and likely scenario going forward. Also hyperinflation is simply a misnomer, hyperinflation is the after-effect of a severe deflation. Hyperinflation is also a political phenomenon and the banking class is in firm control of the money supply in this country (as well as other developed countries such as UK, European nations etc.). Credit is contracting and we have secular deleveraging.

    One caveat is that fiscal policy is a big caveat for this deflation scenario. If fiscal policies are not pro-cyclical (which they are not, under Obama) — then this deflation is actually eased through government spending. Yes government spending is inefficient, but it is preventing a complete catastrophe through severe deflation. For instance, the housing market is kept in a sort of a stasis as home values fall, but the government is preventing from these values plummeting.

    Thanks for the post.


    • February 19, 2012 2:45 pm

      Your analysis is excellent. I agree that the government (policies of Obama) are preventing a major crash…which should have happened by now. His policies, however, are unlikely to create a better overall environment going forward. Our debt problem is basically unsolvable and at some point our politicians need to understand this reality. Will they seek understanding prior to election time? Will anyone desire to expose this unsolvable problem which we all witness at:


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